CW 991 - Understanding Prices Vs Mortgage Payments, Wells Fargo Fine & More

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome listeners from 165 countries worldwide. This is your host, Jason Hartman with episode number 991. Episode 991. Thank you so much for joining me today as we are only nine episodes away from the big 1,000. Yay. Okay, yep, enough of my jubilation, right? Oh, it is an amazing time to be alive. There are so many great things going on in the world and one of them, one of them is this. I believe they are the most corrupt bank in America right now. Well, at least big bank. You know, there are probably some really crooked, crappy little banks, but that's the good old school scumbags at Wells Fargo, they just got fined $1 billion. Actually, it was technically a settlement, but, you know, same difference, right? That's semantics. Semantics. Semantics probably would have cost them a lot more if they waited. But here's the problem with this, folks. You know, I talk about commandment number three, thou shalt maintain control. You know, the problem with these disgusting, pathetic ripoff artists at these big companies, right? The too big to fail, disgusting criminals, right? When they get fined, I believe it's simply part of their business plan. I believe they do the math the way Ford did the math in, what was it, the early 70s? Do you remember the Ford Pinto and the exploding gas tank? They literally did the math. These disgusting killers, these murderers, these criminals did the math. What do I mean by that? Well, let me refresh your memory if you don't know the story. They could have made that car dramatically safer with a couple, like $2 more. But they literally did the math. They thought that if this many people die from our exploding gas tank, then we will pay out this much in settlements. And that's a better deal for us than taking a million cars and spending a dollar or two on each car to make them safer. This is Pathetic and disgusting. I believe Wells Fargo does this math. I believe Goldman Sachs does this math. I believe this is part of their business plan, these fines. And if you think that's not bad enough, let me tell you something else. Here it comes. But wait, there's more. It gets worse. It's worse than that. Here's why. Because the disgusting, pathetic criminals, they don't really suffer that much. So Wells Fargo, for example, they pay a one billion dollar fine, right? They pay the government a billion with a B. A billion dollars. That's pretty big, right? But compared to what? Compared to their revenue, compared to their market cap? Well, it's not that big. But wait, there's more. That's not what I'm gonna say. That's not what's so significant. Here's the really significant part. You know who gets hurt? The most middle class American shareholders that own stock in these companies. Do you think the disgusting, pathetic executives at Wells Fargo or any of these other companies really suffer in any real way? No, they don't. The disgusting, pathetic executives never go to jail. They rip off the shareholders. See, isn't that a great deal? We gotta really rethink the way entity structuring is used in this country and other countries for that matter. Although I'm no expert on other countries. Hey, I'm no expert on this country. But it's just my humble opinion as a hack, as your hack economist and your hack consumer advocate, these companies pay a fine and most of that burden for that fine is on the shareholders. Why don't they make the rule that if the disgusting, pathetic executives aren't going to go to jail like they should, that at least the disgusting, pathetic executives lose some of their actual stock in the company or they lose their overrated, overpaid salaries for a period of X amount of time. See, then there would be some real accountability. There would be some real accountability. So Wells Fargo forces this fake insurance on people that get mortgages. The company pays a billion dollars. And who really pays the fine? Trust me, it ain't the big fat executives. See, this is yet another reason commandment number three is so important. Of my ten commandments of successful investing, Thou shal maintain control is so important because you won't be supporting the evil empire. This folks, is the evil empire. Yes, it is. Now it's interesting you would think, well, isn't Jason Hartman a pro business, pro corporate. I mean, he's an entrepreneur, he's a businessman, he's a CEO of, by the way, several companies, right? And you know, aren't I one of those 1% people, right? Well, sort of, yeah, I guess so. But you know what, here's the problem. I mean, I've got all these libertarian friends and philosophically I agree with them. They're right, you know, they're right most of the time. But hey, even a broken clock is right twice a day, okay? There is a distinction here. There are distinctions. There are shades of gray. Life is complicated, business is complicated. I'll give you an example, lest I digress here for a moment. You know, I consider myself to be a libertarian and Ayn Rand, who I think is a fascinating author. Atlas Shrugged being one of the most profound books ever written. Possibly. Which you should read it if you have time to digest 1200 pages. Atlas Shrugged is pretty incredible. I mean, you know, what is that book? 60 years old now? Something like that. And it's still selling like gangbusters. Interestingly, my mother, who went to Berkeley in the 60s. Yes, Berkeley, uh huh. Very left wing. Berkeley in the 60s and got a degree in nothing other than social welfare. Yeah, she was a social worker. And she saw as a social worker how the government basically by helping people, made them weak and destroyed them, how it destroyed families. And by giving them money, you made their plight worse, you made them dependent, you made them unproductive people. And this is true with, with children, right? Look at all these spoiled kids we have today, right? All these millennials, right? And you know, that's debatable. I mean, I'm not picking on the millennials too terribly much, although they deserve a little bit of picking, but every generation does, right? Hey, the baby boomers, you can pick on them. You can pick on my generation, the Gen Xers too. But the point is that millennial coddled, catered to generation in human history. And parents, yeah, you got to take care of your kids, protect your kids, but you also got to let them take a little risk and get hurt a little bit, right here. I'm talking a hopefully future parent myself, but a none other than a single guy looking for a wife and looking to have children. That's me. Yes. Keep me in mind if you know anybody. But anyway, crazy libertarians, right? Let me give you this one example then. I want to talk about home prices versus interest rates, okay? Crazy libertarians. So I go to Starbucks, I'm in Tampa, Florida, I go to Starbucks, you know, the company that sells the poisonous food and the poisonous coffee sprayed with pesticides, blah, blah, blah. And listen, as much as I like to pick on Starbucks, I am their customer. Although I regret it because there's very little choice. Why is there very little choice? Because of the way capital formation occurs and the concept of crowding out. Okay. We've talked about many economic concepts over the years in the past 990 episodes, and, you know, externalities are a very important concept that I want you to think about. Externalities have an interview coming up where I dive somewhat deeply into the concept of externalities, a very important concept in economics and in the capitalist system. Well, also in the communist system, because they have externalities too. Okay, I'll get to externalities later. Right. But crowding out, that is another very important economic concept that so many people fail to understand. So I take this picture of this poisonous yogurt that Starbucks is selling. Right. Why am I saying it's poisonous? Well, it's not really technically poisonous, Right. But it had, I believe it was 26 grams of added sugar, aka poison, in this little container. I don't know, what was it, four ounces? This is insane, right? That you would have 26 grams of added sugar in this yogurt. That is four ounces. If you consume yogurt like I used to consume a lot. I love yogurt. Okay. But I don't really consume yogurt anymore because most of it has so much sugar. It's pathetic. I mean, these people all thinking they're being healthy eating. Oh, I'm eating yogurt. It's good for you. Probiotics. Yeah, well, it's got a, like a mountain of poisonous sugar in it. Right. So I post this on my Facebook and I say, shame on Starbucks for selling this stuff. All of my libertarian idiot friends start saying, well, Jason, you know, you have a choice. No one's forcing you to eat it. Blah. Yes, I'm aware of that. I'm a responsible adult, you moron, is what I want to tell them. Not you listening. Because you're smart, you're listening. But you know, these people, they all like. Well, just don't. Don't buy it. Right. Okay. Sounds simple enough. Until you understand the concept of capital formation and crowding out, how much choice do you have? So the next day I was in Tampa, Florida. I open up the GPS on my wonderful iPhone, Apple. You know, I don't pick on Apple too much. They're usually a pretty good corporate citizen. And I look for a coffee shop that's not a Starbucks.

Good luck with that. Okay. Good luck finding another coffee shop. Because the way the Capitol formation has occurred in the Wall street game, in the Winner take all society. Yes, I Interviewed the author of that book, who I thought was kind of a lefty socialist professor, but I like the title because he's right just in the concept that he presents in the book. His solutions are Bernie Sanders stupidity. Right. But the concept is, look it, you can't compete with Starbucks. Try opening a coffee sh. They've got so much capital and so much momentum. Good luck. Right, so this is the problem when we have these semi monopolistic giant corporatocracy really too big to fail. I mean, like Starbucks is. Is the too big to fail version of, you know, Lehman Brothers and Goldman Sachs and. And these disgusting financial companies, they're just too big. Right? And the reason they got too big is because of regulation. That's what allowed them to get so big. Most people, they can't see the forest through the trees, right? So they don't understand that. They don't understand that if regulation was reduced and it was easier to go public, there would be other coffee shops that had a chance to compete with Starbucks. Then maybe Starbucks. Shame on Starbucks for selling the pathetic, disgusting, poisonous stuff that they sell. Laden with sugar. Sugar, sugar, poison. Okay, There would be a competitor that would offer maybe a more healthy alternative. Maybe they would offer coffee that's not sprayed with pesticides, that would be organic. Right? Yeah. Okay. Crowding out is the concept of the day. All right, let me play this little video clip from CNBC on Wells Fargo. Then I want to talk about home prices versus interest rates. And then I want to make your real estate investing career easier. Here we go. Official news out of the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency on Wells Fargo announcing the settlement billion dollar penalty against the bank. They're going to credit 500 million collected by the FCC toward the satisfaction of the fine. This goes back to. It's related to auto insurance and mortgage lending abuses. We've said before, it's the toughest action taken by the White House or this administration to date and probably the largest fine in occ. CFPB History.

History. I know the president doesn't like Pinata Fargo. I do think that Pinata Fargo, that is a bad number. But there is. PF is. Oh, I'm sorry, that's. That's Pinnacle Foods. When I say Pinata Fargo, people get confused. I do think that this is a little outsized. But the quarter Wells Fargo makes a ton of money every day, they turn the lights on. I'm going to agree with Pulitzer Prize winner Jim Stewart that this one, it's overdone. At this point, really?

Because you have been amongst the harshest critics of the bank.

When everyone else is is hitting a pinata, I go the other.

Yeah, you do, don't you?

Yeah, I go the other way. 50, 51. I now feel like is there any other organization? I mean the teachers are coming out against them. When the Boy Scouts come out against them, I'm going to go to buy from sell.

Beyond the fact that you like to have the pinata for yourself and all the candy, why else? Why do you feel like the Fed.

Rate sort of Fed rate hikes, man, we could have four.

Did you hear that at the end though, what Kramer said about four rate hikes? There's some urgency. Buy your properties, lock in those rates. Now look at, let's change directions here. Let's talk about interest rates and what it means to the supply and demand equation of the real estate market and what it means to housing affordability. Here's the problem. The low information people, right? The low information people who vote for the wrong politicians and who don't know how to invest, they walk into Merrill lynch and they give the guy in the nice suit all their money and they lose the game, right? All those low information people, right? Well, here's what they do. And you'll hear the talking heads on CNBC and any other media outlet in the world talking about this stuff and they never say compared to what the Jason Hartman question, compared to what, right? So they talk about housing prices and they will say, well, you know, housing prices are at the same level they were at the peak of the market in whenever they determine the peak of the market to be because of course that depends what market, what price segment. It's complicated, okay, but let's just call it 2005, 2006, right? And they'll say, okay, now, you know, around the country, according to the completely overrated Case Shiller index that only profiles 20 markets because it's soundbite worthy and stupid and you know, it's just not enough information, right? It's not enough information in a country with 400 real estate markets almost. Well, give or take 400. I think there's a little less. And I'm going by MSAs, right? So you've got all these low information people that talk in sound bites just like politicians in an election and they don't think for themselves. Right? And we all look at, we all have to do this to some degree. We have to let someone else do the research and some of the thinking for us, right? But we should question what they say. I mean, question things, right, With a reasonable amount of skepticism. Question everybody but me. No, just listen. Listen to me and don't question me. Question everybody else, though. Just kidding. Just kidding. Of course I want you to question me. In fact, I love it when you question me. I love when you go to jason hartman.com ask and you pick apart my arguments. You know why? Because it makes me think. I like to be questioned. I like it when you do it at my seminars, like hopefully you will. May 19th in Philadelphia. And by the way, I have a big announcement about May 19th in Philadelphia.

It's close to Washington and Donald Trump is going to come speak. Choking Obviously that's a joke. Do not take me seriously. You cannot buy a ticket for 300 bucks or whatever they're selling for now. And come see Donald Trump and, you know, you might want to throw a shoe at him. Like, remember that guy who threw the shoe at George Bush? He probably deserved it. Anyway, big announcement for May 19th in Philadelphia. We are going to do. We made some modifications since the last Jason Hartman University event that we did in Silicon Valley and now we're on the other side of the country. We made some refinements and some modifications to my favorite part of that event, the Portfolio Builder game. Yes, we refined that a little bit with the help of one of our clients and listeners, Doug I Berg out there. Hey, Doug, are you listening? Thank you for that. And we made some modifications and we are going to integrate that into the Creating wealth seminar on May 19th. Why are we doing this? It's never been done before. It's a first time. Well, here's why. Because we don't have any more Jason Hartman University events scheduled this year. And this is our only Creating wealth event scheduled for this year. So the Portfolio Builder game has been really popular. You know, we ought to turn this into a board game like Kiyosaki's Cash Flow Game or something like that. Anyway, it's been super popular and really educational to people. So for the first time ever, we are going to do the Creating Wealth Seminar. My oldest and longest running event that many, many thousands of people have loved, loved, loved, loved. I have two bankers boxes full of testimonial. Evaluations. Almost never do I hear a negative comment unless people say, jason, shut up. Don't talk about politics because I hate you. Yes, occasionally I get one of those. But for those high information people, they never say stuff like that. Okay, we're gonna do that on May 19th in Philadelphia. So come be sure that you're there. Now here's the problem with people who don't think things through enough, they don't question it enough, right? They hear the talking head on CNBC or whatever, you know, and I'm not. That's not a criticism of cnbc. Although they deserve a few criticisms now and then, like everybody does except me. Just kidding. And Jason, stop offending everybody. That would be a good criticism, right? Anyway, so they will talk about housing prices, but they never talk about the true cost of home ownership, right? And this of course spills over in a big way into the investment side. When you invest in single family and small multi unit properties, right? It spills over because they'll talk about housing prices and they'll say, well, housing prices are where they were at the peak. You know, we better watch out, the market's gonna change, there's a bubble coming, the bubbles about to burst. And they're right. If they're saying that now in some markets, in the cyclical, overheated, overvalued markets that we don't like to invest in, right? They're right about that. But in the good old linear, boring markets that we like so much, they're wrong, okay? Because they don't calculate the cost of housing. Everybody buys on a payment, not a price. So if you're sitting there saying, well, you know, at X point in the market, like take when I got into the real estate business as a youngster, right? I was a very youngster when I got into the real estate business my first year of college. Interest rates, I think back then rates were 14%. Maybe they were 12%, I don't really remember. I should look this up because I know exactly when I started, so I could look it up. I will do that. I will look it up and I'll get back to you. But they're like 12%, 12, 14%, something like this, right? And the market was starting to boom. It was taking off. Why was it taking off? Can you imagine rates being more than double, almost triple what they are today? Like that same mortgage payment would be almost 300% more, right? It would be triple the amount it is today. What do you think that would do to your affordability level? Right. What do you think it would mean to investors, to homeowners, to home buyers? Right? It would be extremely significant. But compared to what is the right question compared to what? Well, compared to the prior 18% rates, it was cheap. It was cheap, right? So housing prices, that's a flawed metric. You gotta look at the average mortgage payment amount.

Now, is it easy to come by this data? No, it's not easy at all because everybody likes to talk about prices because they just want to have a stupid sound bite. And that's why on this show we dig a little deeper and we examine the facts behind these sound bite type statements. Now this, although I've said all of that, right? Okay, Jason, put it on the shelf here for a moment. Although don't you love these weird people, like these eccentric people like myself that talk about themselves in the third person? I know. So annoying.

Folks, I'm trying to give you a little bit of entertainment value here. And I'm not a comedian, okay? I have no sense of humor. So I'm trying to give you a little entertainment value here while we explore some deep, important concepts to your financial future. So while I said all of that, that let's listen to this little CNBC video, which I thought was very good, by the way, and very interesting. So listen up and then keep in mind everything they say in the in light of what I just said, they leave a little clue to it in here. Here you go. And as bond yields soar, home mortgage rates, you know what they've been doing? They've been going up as well. The rate on the 30 year fixed loan hitting now a four year high. So will this make a tough buyer's market even tougher? Diane Olich has that story. Hi, Dai.

Hi, Ty. Yep, buying a home just got a little more expensive. And this is a big weekend for buyers as real estate agencies and homebuilders are running big spring promotions and sales. Mortgage rates, which loosely follow the 10 year treasury yield, hit their highest level since yesterday, since the end of March, breaking out of a tight range where they've been sitting for a while. The move came as bond yield surged higher. Now, while the increase won't mean a ton of difference in terms of the average monthly payment for a home buyer, it could be signaling the start of another steady rise which we saw at the start of this year. And that can take an emotional toll not just on buyers, but on sellers as well. As rates rise, fewer homeowners will want to sell and buy another home because they'd be likely giving up that record low rate in the 3% range to move and pay on rates closer to 5%. Now, the entire nation is in the midst of a supply crisis and home builders are not ramping up as much as hoped because of higher cost for materials and a labor shortage that's just pushing home prices ever higher.

More, of course, on cnbc.com that is incredibly important. Did you just hear what she said? Let's see if we can just rewind that a little bit. See, fewer people will want to sell because they don't want to give up that incredibly good mortgage they already have. This is like rent control. We did a show on this before where I interviewed Patrick, who does some video production work for us, who lives in San Francisco in a rent controlled apartment. Now, Patrick interestingly thinks it's kind of expensive. And you know, he's right. But the question is, compared to what I think he said he paid like $2,300 a month and the place he was living in was worth $1.5 million. And he's lived there since the late 90s, I believe. Okay. And it stultifies the market because people have such a good thing going that they can't replicate it in their next home. So they stay put. So this is a very important concept. She said it will actually decrease inventory because people won't want to sell, because they won't want to lose that low rate mortgage. And it'll also decrease inventory due to less development because of course any builder is going to have to pay higher rates on the loan. I don't think she mentioned that in the interview. She just mentioned the sellers. Okay, I rewound it just a couple seconds. Let's listen again, make sure we catch.

That is signaling the start of another steady rise which we saw at the start of this year. And that can take an emotional toll not just on buyers, but on sellers as well. As rates rise, fewer homeowners will want to sell and buy another home because they'd be likely giving up that record low rate in the 3% range to move and pay on rates closer to 5%. Now the entire nation is in the midst of a supply crisis and home builders are not, not ramping up as much as hoped because of higher cost for materials and a labor shortage that's just pushing home prices ever higher. More, of course, on cnbc.com so there.

You have it, dear listeners. Supply is constrained, so you got high construction costs. You've got lots of regulatory restrictions. They've always been there. Well, I mean, recently in recent history, they have. You've got this situation where people are going to hold on and they don't want to lose that low rate mortgage. So that equation becomes harder to manage, harder for them to justify the move and having so much experience in traditional real estate. Listen, I sat at the kitchen table with, you know, thousands, literally thousands of home sellers that were contemplating selling their home. Now many of them listed their home with me and in Irvine, California or Newport Beach, California or Tustin, California or Mission Viejo, California, you know, these are all the areas where I used to work and they debated this in this type of market. So this is something that you need to take very seriously as an investor. Get out there and make your purchases and lock in those low interest rate loans because they're still darn good. They're still darn good. And you know, you'll look back in the rearview mirror and think about, oh gosh, I quibbled on that deal over a couple thousand dollars because the rent to value ratio wasn't as good as it used to be. And it's not. It's just not. And now it's even worse. Right? So you know, and I'm talking about in 2020 or something like that, right. But you know, hey, look it, I can't predict the future. Nobody can predict the future. If there's a massive decline in prices, maybe I'll be wrong. But I doubt it because the people that just get in the game and lock in those long fixed rate loans, they always seem to win the game. So let that be. You get some good properties. And we will have two of our local market specialists at our upcoming event in Philadelphia. Two of them will be there. We're trying to arrange for one of our lenders to to attend as well. It's just going to be a great event. Go to Jason hartman.com, click on events and register for the Creating wealth event, the only one this year in Philadelphia on May 19th. And we will look forward to seeing you there. And hey, if you're not local to the Northeastern United States. Our first event in the Northeastern US for a public seminar, we had a Venture alliance event in Newport, Rhode island and now we are doing a week later a Venture alliance event in New York City. This will be our only one there or our first one there. Sorry. It's going to be great. So come and join us on May 19th and go to Jason Hartman.com events to get your tickets. Thanks for listening. Happy investing to one and all. I look forward to seeing you on May 19th in Philadelphia.

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